Due Diligence Data Room

Due diligence is an essential stage of every corporate deal. Before the advent of technology, due diligence was also the most stressful stage as all parties had to go through mountains of data in a really short time. But with the era of the virtual data room due diligence, everyone can now breathe easily.

How virtual data rooms changed due diligence

Data room due diligence is a game-changer for large and small businesses alike. Due diligence on its own is a highly intricate process, and it was further complicated by three factors:

  1. Physical location of data
  2. Data security
  3. Confidentiality

Now, with electronic data room due diligence going entirely virtual, all three problems were solved. Cloud-based dealmaking is more convenient, safe, and streamlined compared to physical dealmaking.

And most importantly, with data rooms, due diligence flows a lot faster, saving precious time for everyone involved.

Is due diligence necessary? Yes. Is seven years of due diligence necessary? Probably not,” — Tom Crouch, American historian.

How do due diligence data rooms work

A due diligence virtual data room is a cloud-technology-based platform for storing and exchanging sensitive information. For the users, it works a lot like a physical data room only in a virtual space.

due diligence data room
  • Example: During an M&A transaction, the seller would set up a data room to provide potential buyers with required documents. Both the buyer and the seller will continue to access the data room to view, retrieve, and update the files until the deal is concluded.

Apart from storage, modern data rooms for due diligence also come with additional features. For the dealmakers, such functionality translates into a centralized hub for resourceful and productive decision-making.

Benefits of a due diligence data room

The data room due diligence is different for every company. Ultimately, each user finds their unique approach and benefits of working with a data room. But there are five universal advantages that apply to anyone considering using a virtual data room for due diligence:

  1. Security

Top due diligence data rooms providers comply with strict safety standards such as ISO27001, SOC 1 or 2, and GDPR. In addition, the electronic data room due diligence procedures will base on advanced technological protocols.
When choosing a data room provider, look for:

  • High-level security servers
  • Maximum uptime guarantee
  • 256-bit encryption
  • Granular permission settings
  • Multi-factor verification
  1. Convenience

With the right due diligence virtual data room provider, every process becomes intuitive and straightforward. Take advantage of features like:

  • Adaptation for all operating systems and mobile devices
  • Bulk document uploads
  • Automatic indexing
  • All formats support
  • Simple file and folder management
  1. Analytics
    Knowing who, when, and for how long accessed your due diligence data room can help maintain focus and control confidentiality. Automatic reporting and analytics are excellent tools for monitoring engagement in your data room and keeping an eye on all the documents.

Look for:

  • Complete audit trails
  • User activity tracking
  • Group reports
  • Color-coded engagement tracking
  • Remote document trailing
  1. Centralization

    Due diligence consists of numerous parallel processes and it might be challenging to see the big picture at all times. But with a virtual data room, you enter a logical deal pipeline with one-stop-shop access to everything and everyone involved.

    Here, you will benefit from data room features, such as:
  • Single sign-on for all projects and subprojects
  • Customization to your needs and preferences
  • Full-text search
  1. Communication

    A due diligence data room will also allow users to stay in touch without leaving the platform. This helps to make decisions faster and keep track of all communications. You will want to see:
  • Live discussions
  • Integration with other platforms such as Gmail
  • FAQ section
  • Interactive Q&A
  • Granular thread access

How to use a data room for due diligence

There are several ways to approach your data room due diligence process. The easiest way is to find a reliable data room provider who will guide you.

Data room companies with due diligence experience offer supporting tools and services to make your experience as effortless as possible. Here are a few tips on how to optimize your time getting started with the virtual data room due diligence:

  • Use a pre-made template to load your data to save time during preparation.
  • Take advantage of the free trial period to familiarize with the features and organize the data room.
  • Pay extra attention to the access setting to make sure every document is viewed on a strict need-to-know basis.
  • Regularly update information inside your data room for due diligence.
  • Ensure everyone in your company understands how virtual data rooms work and educate them if necessary.

A due diligence data room checklist is also an excellent tool in the virtual data room setup and organization.

Due diligence data room checklist

The main challenge of thorough due diligence is keeping everything under control simultaneously. Overlooking just one document can stretch the process and reduce buyer’s trust.

due diligence process

That’s where a due diligence data room checklist comes in handy. Such a checklist will include all the documents you need to upload and break them down into sections by department and purpose.

A typical virtual data room checklist for due diligence will feature:

  • Legal documents

    • Corporate structure chart
    • Joint venture and partnership agreements
    • Business licenses
    • All legal disputes
    • Copies of outstanding debt instruments
  • Financials

    • Audited and unaudited financial statements
    • Budget copies
    • Summary of accounting policies

  • Commercial documents

    • Summary of top customers in recent years
    • Sales channels summary
    • Pricing policies and procedures
    • Marketing and advertising strategies
    • Overview of top suppliers

  • Human resources

    • All employment agreements
    • Current recruitment initiative summary
    • Hiring practices and policies

  • Intellectual property

    • Patent summary
    • List of websites and domains
    • IP agreement copies
    • Restriction summaries
    • Summary of IP violations

These are only a few of what you will find on a virtual data room due diligence checklist. Contact your provider to request a sample of the list to start getting ready for the transaction.